Saturday, 27 September 2008
15:02

Could the Maldives Tourism Development Corporation turn their business model into generating real profits from operations per se?

About four companies are publicly listed and active in the Maldives and the cumulative market capitalisation is less than three billion local Rufiyaa – quarter billion American dollars. All four companies are government initiatives. The Maldives Transport and Contracting Company Plc, State Trading Organisation Plc, and Bank of Maldives have been successful and in operation for some time but only a minute per cent are offered to the public. The fourth and a more recent initiative by the government is the Maldives Tourism Development Corporation (MTDC) in which the government supposedly owns only forty nine per cent. Reports suggest that the government's shares were not paid up and are being adjusted only from dividends. The value proposition for the public is the leasehold for nine uninhabited islands for resort development. MTDC's initial public offering and a further issue of shares were subscribed almost immediately, concluding that the opportunity were taken well. Capital generated helped build Herethera Island Resort in Addu. Most island leases in the company’s asset base including Herethera are now subleased to third parties, apparently by strategy. Steady income from island lease is not bad a strategy and this pays off with a sound cash flow. The company director’s board and shareholders unanimously acknowledged the financial health and approved a ninety per cent return on investment in mare two years. No wonder MTDC’s shares are trading in record numbers these days and the last trade was at Mrf 450 per share. It’s a whopping four and a half fold from face value and anyone out there with these stocks could be selling them.

A hitch worth recognising is that after about two days of disbursement of the declared dividends by MTDC, the Maldives Capital Market Development Authority intervened and temporarily halted the disbursement function. It is about issuing dividends from cash flow and not real profits. Owing to the need to stipulate standards and method of dividend calculation, an investigation was launched. Apparently and as I read from different sources MTDC has resumed handing out the dividends. Many are relieved that they can now collect their due dividends. But the sequence of events experienced this year leaves sufficient room for discussion and questions about the fate of MTDC and its ability to declare future dividends from cash flow alone are dubious than ever, given that regulations are on the way. On the other hand could MTDC and their team turn their business model into a real profit generating model from business activities and operations per se? If so, what should they be doing about it?